Superstar fund manager Sivasubramanian KN has helped one of India’s oldest fund houses give consistent returns. Now, he wants the next line of fund managers to take over
2:15 p.m. Chennai. There is no light on the first floor of Century Center at Alwarpet as the city, like the rest of Tamil Nadu, suffers from frequent outages. But most people inside the Franklin Templeton mutual fund office don’t bother to move from their cubicles. They form silhouettes in the glow of their laptops and there is hardly any conversation. They continue to work. Considering that Uttar Pradesh has just declared its election results and the stock market is almost in a tizzy, the mood inside one of India’s largest fund houses is surprisingly serene.
Sivasubramanian KN, chief investment officer-equity, sits quietly in a small conference room blessed by the afternoon Chennai sun. Like his team, he is nonchalant about the power situation in his office and in Uttar Pradesh. He doesn’t have any electronic device around him to keep a tab on the markets and doesn’t seem to be bothered about the way the Sensex was behaving that day. “Working in Chennai allows us to cut the noise and concentrate on our work,” he says softly.
Sivasubramanian spends most of his time trying to spot companies that will make profits over the long term and also fit in his overall portfolio.
Something he’s been doing with aplomb for nearly two decades. The Rs 4650-crore Bluechip fund that Sivasubramanian managed is the oldest private sector mutual fund scheme in the country—it was floated in 1993—and has consistently outperformed the market.
In the past 15 years, Bluechip has given a return of 22 percent, compared with a category average of 16. According to Morningstar India, it has a very high alpha (or excess returns against the benchmark index) at 6.89 percent. Most of its peers hover around the 3 percent mark. So, if you had invested Rs 10,000 in the Bluechip fund in March 2002, your money would have grown to Rs 93,000 now, against a category average of Rs 57,000.
But what makes Sivasubramanian stand out is not just the stellar performance of the Bluechip fund but also the way he imbibed Franklin Templeton investment philosophy—one that’s based on sound logic and intensive research rather than individual brilliance. In other words, he’s trying to become irrelevant. This is a marked shift from the prevalent culture in the Indian mutual fund space where top fund managers create an aura around themselves and try to become indispensable. “He takes his craft very seriously, but doesn’t take himself seriously as a fund manager,” says Pramod Kumar, CEO of Wealth Advisors India, a Chennai-based independent investment advisory firm and a former colleague of Sivasubramanian.
The Philosophy of Investment
Franklin Templeton’s investment philosophy helped the firm’s funds in two ways. One, it encouraged lead managers to identify the next level of leaders at the fund house. The strong focus on research allowed analysts to become co-fund managers and learn the ropes of successfully managing a portfolio early on in their careers. Already, Anand Radhakrishnan, who was earlier the head of research, has taken over Bluechip and is managing it successfully since 2008. “The system is based on merit. Senior colleagues ensure that their knowledge is passed on and there is always a hand-holding that takes place so that juniors don’t have to reinvent the wheel,” says Radhakrishnan.
Two, it helped Franklin Templeton weather the 2008 global economic crisis much better than most other funds which were seduced into investing in sectors that looked hot, but were not fundamentally sound. “We believe that research is more important than portfolio management. We want to develop research as a distinct platform for analysts,” says Sivasubramanian.
The years since the crisis have been brutal for mutual funds to say the least with the European debt crisis, Japanese earthquake and political instability further weakening sentiment. The Sensex (the Bombay Stock Exchange’s benchmark index) has been brooding around the 17,000 mark and struggled to break the shackles. For most equity funds it has been a tough time as there is no momentum and there are no favourite sectors. The number of funds outperforming the index has been dwindling and almost 53 percent of the funds have fared poorly for the last three years. But even in such conditions, Franklin Templeton is one of the few funds that has managed to ride the tide and maintain its high performance regardless of the state of the markets. Again, this has been possible because of the strong focus on research and having analysts with complete knowledge of their sectors as co-fund managers.
Like all others, it was in Mumbai that Sivasubramanian cut his teeth. Working with the project finance team at IDBI taught him the skill to dissect financial statements and understand the importance of a company’s ability to repay debt over the long term. He also learnt the significance of cash flows as well as the ability to study new emerging businesses. But there was one thing that he never quite learned or appreciated—the daily commute between Andheri and Nariman Point on a Mumbai local. So, when he heard about an opening with Kothari Pioneer in Chennai he was keen to take it.
Correction: This article has been updated with some changes made to the version printed in the magazine.
(This story appears in the 13 April, 2012 issue of Forbes India. To visit our Archives, click here.)